suppose that a firm has a capital structure of 40% debt and 60% equity. the cost of debt is 7.5% and the cost of equity is 18%. the firm is taxed at the 35% marginal tax rate. calculate the after-tax wacc.

The rate a business is anticipated to charge on average to all of the holders of its securities in order to fund its assets is known as the weighted average cost of capital (WACC).
Commonly referred to as the firm's cost of capital, the WACC. Importantly, the external market, not management, sets the rules.
The WACC is an indicator of the minimal rate of return a business must achieve on its current asset base in order to satisfy its owners, creditors, and other capital providers—or risk losing their business.

Cost of debt after-tax = 8 × (1-tax rate)

Cost of debt after-tax = 8 × (1-0.35)

Cost of debt after-tax = 5.2%

WACC = Respective cost × Respective weight

WACC = (0.4 × 5.2)+(0.6 × 18)

WACC = 12.8% (Approx)

Hence, The after-tax WACC is 12.8% .

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